Stocks Higher on Consumer Sentiment Optimism

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.38%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.61%. 

Stocks are trading higher after today’s stronger-than-expected U.S. consumer sentiment index put the U.S. economy in a mildly stronger light.  Stocks are also seeing support from today’s -3 bp decline in the 10-year T-note yield and the favorable U.S. import price report.

The University of Michigan today reported that its preliminary-Aug U.S. consumer sentiment index rose by +3.6 points to a 3-month high of 55.1, which was stronger than market expectations of +1.0 point to 52.5.  The uptick in consumer sentiment was a step in the right direction, but the index is still only 5.1 points above June’s record low of 50.0 (data since 1978).  Consumers remain worried about inflation, high gasoline prices, rising interest rates, and a weakening labor market if the economy continues to slide.

There was some good news on the inflation front with today’s report that U.S. July import prices fell -1.4% m/m and eased to +8.8% y/y from June’s +10.7%.  U.S. July import prices ex-petroleum fell -0.7% m/m, adding to June’s revised -0.5% m/m drop.

San Francisco Fed President Mary Daly said in an interview late Thursday that her base case is for a +50 bp rate hike at the Sep 20-21 FOMC meeting but that she has an “open mind” about whether a larger rate hike might be necessary.  She said the July inflation figures are “significant in that they are saying that we’re seeing some improvement, but they’re not victory.”

This week’s favorable CPI and PPI reports caused the markets to scale back expectations for a +75 bp rate hike at the Sep 20-21 FOMC meeting to about 50-50 versus the previous view of a very strong chance.  The July CPI on Wednesday fell by -0.6 points to +8.5% y/y from June’s 40-year peak of +9.1%.  The July core CPI was unchanged from June at +5.9% y/y and remained -0.6 points below the 40-year peak of +6.5% y/y posted earlier this year in March. 

The U.S. House of Representatives returned from its recess for a vote today on the Inflation Reduction Act, which passed the Senate this past Sunday. The bill is expected to easily pass the House and then be signed into law by President Biden.  The bill contains $430 billion of spending on climate and healthcare, and also cuts the U.S. budget deficit. 

Sep WTI crude oil prices this morning are down -2.7%, giving back part of the sharp rallies of +2.62% seen on Thursday and +1.58% on Wednesday.  Oil prices are lower after Iran said that the EU proposal to revive the Iran nuclear deal could be “acceptable” under certain conditions.  A revived nuclear deal would result in reduced sanctions that allow Iran to restart its oil exports.

The Euro Stoxx 50 today is up +0.46%.  China’s Shanghai Composite index today closed down -0.15%.  Japan’s Nikkei index today closed up +2.62% after Thursday’s holiday.

Today’s stock movers…

U.S.-listed Chinese stocks are trading lower after the overnight news that five of China’s state-owned companies will voluntarily delist from the U.S. markets.  Those five companies are all down by a little more than -3% today. Those companies include China Life Insurance (LFC), PetroChina (PTR), China Petroleum & Chemical Corp (SNP), Sinopec Shanghai Petrochemical Co (SHI), and Aluminum Corp of China (ACH).

That delisting news indicates that China is not giving in to the U.S. demand for audits and that negotiations may be deadlocked.  However, it is also possible that the delisting of China’s sensitive state-owned companies might make it easier for China to agree to an audit deal once its state-owned companies are out of the picture.  U.S. law currently requires U.S.-listed Chinese companies to provide the audit information that the U.S. is demanding or the companies will be delisted in 2024.  There are reports that China may segment its companies according to the sensitivity of the information that they handle, allowing less-sensitive companies to perhaps meet the U.S. audit demands and remain listed in the U.S.

Other closely-watched U.S.-listed Chinese companies are trading lower on today’s state-company delisting news.  Alibaba (BABA) is down -2.1%, Pinduoduo (PDD) is down -2.6%, Baidu (BIDU) is down -1.3%, JD.com (JD) is down -1.6%, and Bilibili (BILI) is down -1.7%.

Bitcoin (^BTCUSD) this morning is down -1.6%, but crypto stocks are trading mixed.  Most crypto stocks on Thursday rallied due to bitcoin’s +1.30% gain, except for Coinbase (COIN), which closed the day down -10.95%.  Coinbase (COIN) today is up +4.2%, Marathon Digital (MARA) is down -1.2%, and Riot Blockchain (RIOT) is up +0.2%.

Oil and gas company stocks are seeing downward pressure today, with Sep WTI crude oil today down -2.9% and Sep natural gas down -1.6%.  Exxon Mobil (XOM) is down -0.7%, Occidental Petroleum (OXY) is down -0.9%, and ConocoPhillips (COP) is down -0.1%.  However, Marathon Oil (MRO) is trading slightly higher.

Across the markets…

Sep 10-year T-notes (ZNU22) today are up +1.5 ticks, and the 10-year T-note yield is down -3.3 bp at 2.855%.  T-note prices are seeing support today from the favorable U.S. import price report and carry-over from this week’s favorable CPI and PPI reports.  T-note prices are also seeing support from supply relief after the conclusion on Thursday of this week’s coupon auctions. However, T-note prices are seeing some downward pressure from today’s stronger-than-expected U.S. consumer sentiment report and from higher stocks.

The dollar index (DXY00) today is up by +0.6% on some pre-weekend short-covering after this week’s sharp decline to a 1-1/2 month low on the favorable CPI and PPI reports.  The dollar is seeing some support from today’s stronger-than-expected U.S. consumer sentiment report, which suggested that consumer spending might hold up better than expected.  The dollar is being undercut by today’s small -3 bp decline in the 10-year T-note yield.

EUR/USD (^EURUSD) today is down -0.6% on dollar strength.  The euro failed to gain much traction from the bullish news that Eurozone June industrial production rose by +0.7% m/m and +2.4% y/y, which was stronger than expectations of +0.2% m/m and +1.2% y/y, and added to May’s increase of +0.8% m/m.  USD/JPY (^USDJPY) today is down -0.45%.

October gold (GCV22) is up +2.2 (+0.12%), and September silver (SIU22) is up +0.161 (+0.82%).  Gold prices are trading higher on carry-over from this week’s dovish turn in expectations for Fed policy.  Gold is higher despite today’s rally in the dollar.  Silver is seeing some strength from today’s stronger-than-expected U.S. consumer sentiment index, which put the U.S. economy is a slightly better light.

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